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3 Real Lawsuits against Small IT Businesses

3 Real Lawsuits against Small IT Businesses

In these three lawsuits, developers and IT contractors were sued for thousands of dollars, even though they did nothing wrong. Here's what you can learn from their bad luck.

Friday, April 10, 2015/Categories: general-liability-insurance

With all its start-up businesses, quirky programmers, and omitted vowels (we're looking at you, Tumblr), the tech world can seem like an innovator's playground. But much like the real playgrounds of our youth, there's a lot of infighting, bullying, and name calling. In the business world, these disputes often take the form of lawsuits.

Obviously, we can't predict when, how, or why your business could be sued. But we can help you get a better handle on your IT liability.

Let's look at three real-life lawsuits that targeted small tech businesses.

Case Study 1: Trademark Infringement Lawsuit against Web Developer

According to Moz.com, one SEO web developer found himself embroiled in a trademark infringement lawsuit when U-Haul sued him over the use of the phrases "moving help" and "moving helpers." Trademark lawsuits often happen just like this: a large company with a large portfolio of trademarks sues its small competitors that use phrases that are similar to its trademarks.

Because the developer used phrases similar to "moving help" in metadata on his site, he was served with a lawsuit from a corporation that was probably thousands of times larger than his small business.

The takeaway: Lawsuits can be David vs. Goliath battles. Make sure you have IT small business insurance backing your business.

Case Study 2: Start-Ups Fight over Mobile App Marketspace

A TechCrunch article details the story of two mobile apps: WhosHere and Who's Near Me Live. WhosHere was the first of these two apps, and it allows iOS users to talk with other local users for free.

An unaffiliated developer, Brian Hamachek, thought it should expand to Windows phone users and pitched his services to the company. When WhosHere politely declined Hamachek's offer, he decided he would build his own app.

Once Hamachek's app Who's Near Me Live took off, WhosHere sued him, claiming his app infringed on their trademark and demanding that he cease and desist and turn over his business to them. As a small-business owner without a legal background, Hamachek was overwhelmed with the lawsuit paperwork and tried to hire lawyers. Unfortunately, law firms wanted a $10,000 retainer before they'd work for him.

The takeaway: A lawsuit can catch you off guard. With all the cutthroat competition in the mobile market and software development, IT contractors should plan for unexpected legal expenses (insurance can help with that!).

Case Study 3: Small-Time Programmer Sued over App

Like many apps, Todd Moore's white noise app never really caught on. The small project only delivered $500 in revenue.

Lodsys, a company that holds a wide variety of basic programming patents, is suing Moore because his app infringed on their patent for code that allows you to open a URL link in another app – a feature that countless apps have, according to TechDirt.

How much is Lodsys suing for? Normally, Lodsys sues for one percent of future revenue. Given that the app has made $500, the bill would come to a whopping $5. But Lodsys is actually asking for $3,500 in this case, leaving the developer Moore completely puzzled. How can an app be sued for seven times its total revenue?

The takeaway: It doesn't matter how small your business is. Even if you make an app that only makes background noise, you could be sued for thousands of dollars.

Lawsuits Are Expensive for Small IT Companies

Some of these cases were frivolous or unfair, but that doesn't mean that the small-business owner won't have to spend thousands in legal bills to protect the company.

With small business insurance, your insurer can provide you with a lawyer for claims your policy covers. You won't have to worry about retainers or invoices from a law firm. If a larger competitor claims you've infringed on its trademark and sues you, your General Liability Insurance carrier can set you up with a lawyer to handle the advertising injury lawsuit.

When even the smallest app-makers can be sued for exorbitant damages, IT companies need to make sure they protect their finances and prepare for the huge costs that can come with lawsuits.

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